HomeOpinionPersistent constraints to Zim economic growth

Persistent constraints to Zim economic growth

By Victor Bhoroma

Since 1980, Zimbabwe’s economy has only gained US$12 billion in terms of real economic growth as measured by Gross Domestic Product (GDP). In terms of standards of living and prosperity for its citizens, the country’s GDP Per Capita in 1980 was US$901 and in 2021 it was approximately US$1 254. This means that the economy has not managed to significantly transform the lives of an average Zimbabweans in the past 41 years despite the billions’ worth of mineral reserves and other resources.

After two years of successive decline, the World Bank pointed out that Zimbabwe’s economy grew by 5,1% in 2021, a position which affirms the economy’s strong growth potential despite the impact of Covid-19 pandemic on business and livelihoods. The 2021 growth was anchored on improved rainfall, stability brought about by re-dollarisation to the market and increase in foreign currency earnings (from commodity exports and remittances).

African peers progress

A 40-year comparison with selected African countries that had the same GDP (some less than) with Zimbabwe in 1980 paints a painful story of how the country has been left behind especially since the year 2000. Ghana, which had an economy smaller than Zimbabwe at US$4,45 billion in 1980, now ranks as the 8th largest economy in Africa with output over US$72,35 billion. Tunisia with a population of 12 million in 2020 (less than Zimbabwe), now has an economy more than double the size of Zimbabwe. The table below shows the selected African countries.

Regional peers such as Botswana, Namibia, Mozambique, and Malawi were not considered as their economies were less than half the size of Zimbabwe in 1980 while South Africa was already Africa’s largest and most industrialized country with a GDP of over US$83 billion in the same year. It is fair to say something fundamentally wrong transpired since independence. The lack of significant growth points to persistent constraints that are not being addressed and repeated policy blunders on the part of the government. Discussed below are some of these constraints:

Land tenure in agriculture

The fast tracked and chaotic Land Reform Programme of 2000 dealt a major blow to the country’s food security status, employment rate, industrial capacity, and export earnings. However, there is no doubt that Zimbabwe’s land reform programme was necessary to address the colonial era land injustices that had seen less than 5 000 white commercial farmers owning 51% of the total land (mostly fertile land as well), leaving the native communal farmers with less than 22% of the infertile lands.

Now, the key challenge is that most farmers lack bankable title to the land yet farming requires significant capital investment to enjoy economies of scale. Capital is very key for the productive A1 and A2 farmers who sit on large tracts of productive land. Local financial institutions and the private sector cannot fund land without change of land tenure regulations.

Agriculture remains central to Zimbabwe’s economic growth prospects even though its contribution has declined to less than 10% of Gross Domestic Product (GDP). Agriculture has strong backward and forward integration to the manufacturing sector for provision of raw materials and inputs. It also provides employment (directly and indirectly) to over 65% of the country’s economically active population. Efficient production in agriculture can save the country at least half a billion in foreign currency currently being used to import grain (wheat, soya & maize). However, there has been notable success in tobacco farming where small scale farmers have been critical in the delivery of an average of 230kgs of tobacco for the past 5 years, earning the country over US$800 million in export proceeds.

The government predominantly prefers giving inputs subsidies to small holder farmers, pegging producer prices and centralising land tenure for political reasons. Most local farmers have folded their hands on self-financing, rely on the government for cheap inputs and have limited scope of farming as a business.

 Monetary policy inconsistency

Zimbabwe has not had a consistent currency or consistent foreign exchange policy for several years. The country’s central bank quasi-fiscal operations and deficit financing have necessitated astronomic levels of money printing at the expense of the economy. The economy tanked in 2006-2009 and 2019-2020 due to hyperinflation.  In the same vein, overregulation on foreign exchange makes it difficult for investors to repatriate dividends or move capital.

Recently, the central bank parcelled over US$3,8 billion in foreign debt emanating from flawed foreign exchange policies. Several multinational companies and foreign firms disinvest from Zimbabwe due to hostile foreign exchange policies that lead to losses. At the core of the issue is the government’s desire to control the central bank monetary policy and ensure money printing can be done whenever tax revenues fall short of targeted government expenditure. Between 2015 and 2021, the country promulgated over hundreds of statutory instruments (temporary measures) aligned to monetary policy. Some simply expired before parliamentary ratification.

Infrastructure decay

Zimbabwe inherited decent electricity generation and transmission, railway, road, housing, water, and sanitation infrastructure in 1980. However, over the years there has been lack of investment and rehabilitation (from local governments as well) to a level where some facilities disintegrated. Poor infrastructure impedes economic growth for example the prolonged power cuts have repeatedly cost the economy billions as power generation capacity no longer matches demand from population and industrial growth.

Provision of clean water, decent housing, decent roads and highways, efficient rail transportation for citizens and industry, and stable power supplies remain elusive dreams. Investment in infrastructure is usually sacrificed for quick political gains in agriculture subsidies, while the country’s inconsistent monetary policies and lack of clear Public Private Partnership (PPP) statutes hinder private sector funding of key infrastructure. Corruption and government bureaucracy have also frustrated potential sponsors in infrastructure development.

Rule of  law

Domestic and foreign investment inflows into the country remain very low. In 2020, Foreign Direct Investment (FDI) inflows declined to US$194 million from US$259 million in 2019. For Zimbabwe to attract meaningful investment inflows, there must be guarantees to investor property rights and respect for rule of law for any type of investment. The unending cases of arbitrary acquisition of mining assets, private land or productive farms and outright disregard of court orders by the government or politically exposed persons (PEPs) scares away genuine investment.

Multinational businesses or institutional investors who see potential in Zimbabwe have adopted a wait-and-see approach for the past 10 years. Regrettably, rule of law and politics are inseparable.

Corruption

Transparency International consistently ranks Zimbabwe among the most corrupt countries in the world, with corruption levels peaking from 2015 onwards. Corruption is bleeding public resources and exacerbating inequality in the country. Inequality in Zimbabwe has risen sharply from 45 in 2017 to 50,3 in 2019 as measured by the World Bank Gini Index, with the richest 10% of Zimbabweans consuming 20 times more than the poorest 10%. Overregulation on petroleum marketing, foreign exchange controls, import and export procedures, legal tender, mining permits and grain marketing regulations have dented genuine investor sentiments, while creating rent seeking behaviour among public officials.

The unpredictability of the government’s economic policies and the unstable political and economic climate in recent years has undermined Zimbabwe’s economic growth prospects.

Over taxation in most economic sectors and high cost of doing business locally have impacted on the country’s competitiveness. Similarly, the reindustrialisation drive requires massive investment from the private sector, which remains elusive due to factors above.

The country has very rich mineral deposits and a skilled labour force which represent genuine assets to lure investment. To address most of these constraints, nothing less than political will can make the cut. The government needs to do away with its obsession for market control, governance through temporary legislation and allow free market policies to shape private sector investment in the economy. This will go a long way to reduce the cancer of corruption that has torn apart Zimbabwe’s economic fabric.

  • Bhoroma is an economic analyst and holds an MBA from the University of Zimbabwe. —  vbhoroma@gmail.com or Twitter: @VictorBhoroma1.

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